Novartis generates 10% profit growth

Drugmaker affirms outlook in wake of quarterly results

By

AudeLagorce

LONDON (MarketWatch) - Swiss pharmaceutical giant Novartis AG on Monday reported a forecast-beating 10% increase in first-quarter profit as it kept a tight lid on costs and benefited from the weaker dollar.

Profit from continuing operations climbed to $2.3 billion from $2.09 billion. Consensus forecasts were for profit of $1.82 billion, according to a survey of six analysts conducted by FactSet Research.

Quarterly sales rose 8.6% to $9.9 billion and were little changed in local currencies, with a weak dollar leading to an overall gain.

Shares of Novartis
NVS, +2.78%
(001200526) moved up 3.7% in early-afternoon Swiss trading.

Novartis noted that it's saved $160 million so far as part of its plan to cut 2,500 jobs to counteract increased competition and tighter regulations.

Novartis, which earlier this month agreed to buy a $39 billion stake in eye-care specialist Alcon
ACL, +0.00%
in a two-step transaction, also confirmed its projection calling for sales to grow less than 10% this year.

"I am confident Novartis will once again achieve record sales and earnings in 2008 from continuing operations now fully focused on health care," said Chief Executive Daniel Vasella in a statement.

Analysts welcomed the results.

"These results confirm our view after the fiscal 2007 results that Novartis used fourth-quarter results for substantial kitchen-sinking, with the goal of significantly lowering market expectations and the intention of beating those expectations in 2008," Bear Stearns said, adding it expects consensus forecasts to increase "substantially" after these results.

Kitchen sinking in expression sometimes used by brokers to mean a company used a particular occasion to get all the bad news out of the way.

Analysts at Natixis Securities said the results "mark a sharp about-turn in the trends observed in the fourth quarter." The turnaround appears to have stemmed from better-than-expected sales of Diovan and Gleevec as well as cost-cutting efforts, they said.

"Against a backdrop of very modest earnings growth in the European sector, these results will be well received by the market," the broker concluded.

Novartis, facing the same problems as other large pharmaceutical companies, needs to find new drugs to bulk up its pipeline as patents near expiration on some of its blockbusters, including high-blood-pressure medication Diovan and cancer drug Gleevec, potentially threatening earnings growth. The acquisition of Alcon is designed to help reduce the company's reliance on new drugs.

The results were pored over for hints of what to expect when European rivals AstraZeneca (AZN)
AZN, +3.77%
and GlaxoSmithKline (GSK)
GSK, +0.86%
report their own financial results later this week. Roche Holdings
RHHDY
reported on Thursday a worse-than-expected 4% drop in first-quarter sales. See full story.

Pipeline update

Novartis said it doesn't expect to resubmit diabetes drug Galvus for U.S. approval until 2010. And Zelnorm, an irritable-bowel-syndrome treatment, will not be resubmitted for U.S. approval after concerns emerged that it could be linked to heart attacks and strokes.

There was positive news, too, as Novartis said its Extavia multiple sclerosis drug would be filed for U.S. approval soon in anticipation of being launched on both sides of the Atlantic early in 2009.

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